AGL Resources Inc. today reported first quarter 2015 income from continuing operations excluding wholesale services of $159 million, or $1.34 per diluted share, compared to $157 million, or $1.32 per diluted share in the first quarter of 2014. On a consolidated basis, income from continuing operations attributable to AGL Resources Inc. was $193 million, or $1.62 per share, compared to $334 million, or $2.81 per share in the first quarter of 2014.

"In line with the higher 2015 EPS guidance range announced in March, AGL Resources' strong first-quarter results reflect growth in our core utility business, enhanced earnings across distribution and retail related to colder-than-normal weather and exceptional first quarter results from wholesale services. When normalizing the positive impacts of colder-than-normal weather experienced in the first quarters of both 2015 and 2014, EBIT in the distribution segment improved by approximately $6 million, driven by higher infrastructure investment margin and customer growth. Our retail and midstream segments also improved year-over-year," said Andrew W. Evans, AGL Resources' Executive Vice President and Chief Financial Officer. "In addition, we had excellent performance from our wholesale services segment, with reported EBIT of $56 million and economic earnings of $89 million during the first quarter of the year. As previously indicated, we expect to generate consolidated EPS in 2015 of $2.85 to $3.10, and $2.70 to $2.80 excluding wholesale services."

"Our first-quarter performance supports our strategy of generating a predictable, attractive earnings stream for our shareholders," said John W. Somerhalder II, AGL Resources' Chairman, President and Chief Executive Officer. "We continue to invest in utility projects that drive rate base growth with minimal regulatory lag, as well as interstate pipeline projects supported by long-term contracts. As we execute on these plans and effectively manage our complementary portfolio of assets, we expect to generate long-term average annual EPS growth of 6% to 9% through 2019."   

First Quarter EPS and Adjusted EPS Results

1. Excludes discontinued operations, primarily Tropical Shipping, the sale of which resulted in diluted EPS reduction of $0.43 for the first quarter of 2014.

First Quarter EBIT Results by Segment for Continuing Operations
(in millions)

(1)   Colder-than-normal weather positively impacted results by $9 million and $16 million in 1Q15 and 1Q14, respectively.
(2)   Colder-than-normal weather positively impacted results by $10 million and $14 million in 1Q15 and 1Q14, respectively. Retail operations results for 1Q15 include recovery of $11 million of hedge losses and LOCOM adjustments from 2014 that were recorded in the first quarter of 2015. Before minority interest of $12 million for 2015 and 2014.
(3)   Average annual economic earnings expectation for the Wholesale Services segment is approximately $50 million; 1Q15 and 1Q14 results reflect Sequent's ability to generate significant upside in periods of market volatility.

The primary drivers of the year-over-year decline in diluted EPS from continuing operations include the following:

• Commercial activity in the wholesale services segment of $113 million in the first quarter of 2015, compared to $375 million in the first quarter of 2014. The change in commercial activity was driven by lower volatility in natural gas commodity and transportation prices compared to prior year record commercial activity resulting from extremely cold temperatures in 2014; and
• First quarter 2015 weather was colder-than-normal, resulting in additional margin of $19 million across the distribution operations and retail operations segments; this compares to additional first quarter 2014 margin of $30 million related to significantly colder-than-normal weather.

These decreases were partially offset by:

• Increased revenues from regulatory infrastructure replacement programs and customer growth in the distribution operations segment;
• Higher EBIT at retail operations mainly from higher margin related to expanded markets and favorable retail margins in Georgia. During the first quarter of 2015, the retail operations segment recovered $8 million of mark-to-market hedge losses and $3 million of lower-of-cost-or-market (LOCOM) adjustments that were recorded during 2014. The remaining $5 million of hedge losses that were recorded in 2014 are expected to be recovered by the end of the year;
• Lower mark-to-market accounting hedge losses, net of inventory adjustments, at wholesale services of $32 million in the current year, compared to $47 million in the first quarter of 2014; and
• Lower incentive compensation expense of $16 million year-over-year, primarily at wholesale services where a fixed percentage of earnings is paid, related to lower earnings compared to prior year.

INTEREST EXPENSE, INCOME TAXES AND MINORITY INTEREST

• Interest expense was $44 million for the first quarter of 2015, a decrease of $2 million compared to the first quarter of 2014.  
• Income tax expense for the first quarter of 2015 was $118 million, compared to $203 million for the same period in 2014, primarily due to lower earnings relative to the prior year.
• Net income attributable to minority interest was $12 million in each of the first quarters of 2015 and 2014. This reflects the 15% share earnings attributable to our SouthStar Energy Services joint venture partner (Piedmont Natural Gas).

2015 EARNINGS GUIDANCE

AGL Resources expects its consolidated diluted EPS in 2015 to be in the range of $2.85 to $3.10, excluding mark-to-market hedge movements for 2016 and forward positions. Adjusted 2015 earnings per share excluding wholesale services are expected to be in the range of $2.70 to $2.80. Adjusted EPS guidance excludes the wholesale services segment to remove earnings volatility created by mark-to-market accounting in this segment, and to better describe the underlying earnings drivers and results from our other operating segments.

The wholesale services segment is expected to generate economic earnings in the range of $80 million to $110 million in 2015 (substantially higher than annual average expectation of $50 million). However, EPS on a GAAP basis in the wholesale services segment is expected to be approximately $0.15-$0.30 per share, reflecting the impact of hedge gains in 2014 related to 2015 transactions. The wholesale services EPS estimate excludes mark-to-market movements that may impact EPS in 2015. Reported EBIT for the wholesale services segment will be provided each quarter along with a reconciliation to economic earnings.  

Unanticipated changes in these events or other circumstances could materially impact earnings, and could result in earnings for 2015 significantly above or below this guidance. Factors that could cause such changes are described below in Forward-Looking Statements and in other company documents on file with the Securities and Exchange Commission.

EARNINGS CONFERENCE CALL/WEBCAST

AGL Resources will hold a conference call to discuss its first quarter 2015 results on April 28, 2015, at 4 p.m. Eastern Time. The conference call will be webcast and can be accessed via the Investor Relations section of the company's website (www.aglresources.com). Participants also may listen via telephone by dialing 877.474.9502 if calling from the U.S., or 857.244.7555 if dialing from outside of the U.S. (Passcode: 20021194). For participants on the telephone, please place your call 10 minutes prior to the start of the call.

The webcast will be archived on the Investor Relations section of the company's website. A telephone replay will be available for seven days following the call and can be accessed by dialing 888.286.8010 from the U.S., or 617.801.6888 from outside of the U.S. (Passcode: 11746390).